Brexit’ threatens UK fossil-fuel investments, Chatham House says

31 January 2017 9:55am

17 May 2016. By Emily Waterfield.

The UK risks losing investment in its North Sea oil and natural-gas fields if it leaves the EU, a senior analyst from Chatham House said today.

In a report due to be published next week, the British think tank will argue that “Brexit” may also make it harder for Britain to negotiate with important energy suppliers such as Russia.

“There would be potentially higher investment and exploration costs for North Sea oil and gas resources” in the event of a vote to leave, Antony Froggatt, a senior research fellow at Chatham House told a briefing in Brussels.

This means “you could imagine that UK fossil-fuel investment would become less economic,” he said. “Energy imports would then have to be higher.”

UK citizens go to the polls on June 23 to decide whether the country should continue its membership of the EU.

Fossil-fuel resources in the North Sea put the UK among the world’s top oil and gas producers — second only to Norway among European countries.

Environmental analysts last week said regulatory and currency volatility following a vote to leave in the UK referendum would prompt many companies to withdraw investment from British energy-grid projects (see here).

But Froggatt added that it is “highly contested” what effect a Brexit would have on energy investments in the UK.

But an increase in imports is the “logical conclusion” of a drop in investor confidence, driven by uncertainty following a UK departure from the EU bloc, he said.

The question of energy diplomacy if the UK decides to go it alone is also “very interesting,” Froggatt said.

“Would the UK have a stronger voice in energy negotiations, for instance with Russia?” he said. “We would argue not.”

UK Secretary of State for Energy Amber Rudd has also argued that Brexit would leave London struggling to negotiate with Moscow — even though the UK currently imports no gas from Russia (see here).

Froggatt said it was “possible” the UK would become more dependent on Russian gas over the coming years, as a result of dwindling North Sea resources and the closure of Britain’s coal mines.

But an increase in gas imports seems inevitable, regardless of the referendum outcome, making good diplomatic relations with exporting countries more important, he said.

“Unless the UK significantly increases investments in energy efficiency and renewables, [the future] will involve increased imports of continental gas,” he said. “It’s less important whether the UK is importing directly from Russia or not.”

The Chatham House report, on “The Impact of Brexit on Energy and Climate Policy,” is due to be published early next week.

Impact on Europe

A former adviser to the UK government has said Brexit would also have a major impact on EU policy, with the departure of Britain entailing the loss of a major player in energy matters.

“One of the areas in which the UK has been extremely influential over the last 20 years is EU energy and climate policy,” said Matt Hinde, head of EU Strategy in the UK energy department for the years 2013 through 2015.

Britain has been a strong supporter of European Commission proposals for market liberalization in the energy sector, said Hinde, who now works in Brussels for public-relations agency FleishmanHillard.

The UK is a keen supporter of privatization in sectors from transport to education, and was one of the first countries to end the nationalization of energy companies.

“British policymakers tend to be free marketeers,” Hinde said.

When it comes to security of energy supply, he said the UK “doesn’t really have skin in the game,” thanks to its large domestic fuel resources. “But we have consistently backed commission work on security of supply. That will be lost if the UK leaves the EU.”

“ETS reform will also become more difficult,” he said, referring to commission proposals to push up the price of carbon on the Emissions Trading System. The UK is the only country to have introduced a carbon floor price, in an effort to make investments in clean technologies more attractive.

In addition, “the UK is a much-needed voice in favor of nuclear,” which provides half of the bloc’s low-carbon energy, Hinde said.

Without investments in new nuclear reactors, like those foreseen under UK energy policy, “it will be much harder to decarbonize eastern Europe,” he said.

The UK also pushed for ambitious greenhouse-gas reduction targets — and an end to binding national renewables targets — after 2020, Hinde said today. “The 2030 [climate] system would not have happened without the UK,” he said.

“If the UK leaves, it will change the nature of EU climate and energy policy,” Hinde said today.

Brexit Special Report